Vice President of the European Commission responsible for Competition Policy

Introductory remarks on UPS/ TNT Express merger

Press conference- Press room

Brussels, 30 January 2013

Today the Commission decided to prohibit the acquisition of the logistics company TNT Express by its competitor UPS.

In our investigation we found that the proposed take-over would have restricted competition in 15 Member States and would have likely led to price increases.

Before I explain to you why I reached such a conclusion, let me say a few words on the markets we are talking about.

In our Single Market, many businesses and citizens need to send small packages to various European countries. Sometimes, they require "express deliveries": this means that the delivery must take place on the next day. Just think of spare parts to restart a device, blood samples shipped for testing, medicines that are quickly needed because they have run out of stock and so on and so forth – not to mention important and very urgent documents.

These customers need access to reliable services that truly fit their needs. For them, deferred deliveries, beyond 24 hours, is not an option. Many of them also need a provider that can ship in all Europe, not just from one country to another particular country.

Express deliveries require very sophisticated processes and an adequate infrastructure, such as an air transport network, in order to meet the required deadline in any European country.

The main providers of these services are the so-called "integrators". They are called this way because they control an international network for both air and ground delivery. Their networks, which are run by complex IT systems, include local sorting centres, air and ground hubs, as well as fleets of vans, trucks and aircraft.

Today there are only four integrators in Europe: UPS, TNT, DHL and FedEx.

The acquisition of TNT by UPS would have significantly changed the competitive situation in the market.

So we had to look very closely at its impact, keeping in mind that customers rely on vibrant competition between providers so that they can access good quality services on affordable terms.

Let me now turn to the details of our analysis.

First, we found – in agreement with UPS - that the markets for deliveries within the European Economic Area (EEA) are national in scope. The reason is that customers look at the various alternatives available in their home country when they need a company that can provide express delivery services to any other European country.

We found that in these markets, integrators only faced limited competition by national postal operators, freight forwarders or local or national delivery companies, because they rely heavily on road rather than air transport. They are only marginal players in express delivery because they cannot reach the same levels of efficiency or reliability as integrators, in the absence of adequate ground and air networks.

We also found that in a number of countries, FedEx – one of the four integrators active in Europe – is not a significant competitor, in particular because of the limited density and scale of its intra-European network.

As a result, in many countries there are only three main players among which many customers can really choose – UPS, TNT Express and DHL. The merger would have drastically reduced choice for these customers, bringing the possible options to only two: UPS/TNT on the one hand and DHL on the other.

We analysed what the concrete impact of such a concentration would be. We found that prices would increase in 29 countries within the European Economic Area (EEA).

However, UPS argued that the merger would have created significant efficiencies to outweigh these negative effects. We looked very carefully at these arguments. Our investigation – supported by a thorough economic assessment – showed that some of the savings resulting from the combination of the parties' intra-European air networks could indeed be passed on to consumers. Still, we also found that in many countries these benefits would not outweigh the price increases resulting from the lessening of competition caused by the merger.

In the end we concluded that in 15 Member States of the EU this acquisition raised very serious competition problems.

UPS attempted to address our concerns by offering remedies.

The company offered to divest TNT's subsidiaries in these 15 countries. It also pledged to sell – under certain conditions – TNT's subsidiaries in two other Member States to transfer more volume of intra-EEA express deliveries to a prospective purchaser.

In addition, UPS said it would give access to its intra-European air network to the purchaser for five years if the buyer was a non-integrator.

Although these proposals were submitted at a very late stage in the procedure, we engaged in a very extensive analysis and had in-depth discussions with UPS. The company had the opportunity to improve its remedies on two occasions.

However, at the end of these conversations and exchanges, the UPS proposals remained insufficient.

The only way to remedy our concerns was to provide a solution which would allow the presence on the market of another strong player alongside UPS and DHL. This strong player could have been either another "integrator", or another company capable of exercising an equivalent competitive constraint.

Our investigation revealed that the potential purchasers of the assets that we could consider suitable were very few. The purchaser would have to use the assets for express deliveries and not for other types of services. To cover all destination countries in the EEA, any purchaser would need an appropriate network or at least partnerships in these countries. Moreover, the purchaser would need an air-transport solution after the five-year period during which UPS would offer access.

Given the very small number of potentially suitable buyers in this case, there was a lot of uncertainty about whether the remedies would be at all effective if the Commission authorised the acquisition. Needless to say, given the very serious competition problems identified, this uncertainty was problematic.

To address such uncertainty, UPS would have needed to commit, as part of the remedies package, to sign a binding agreement with a suitable buyer before the concentration was materially implemented. We would then have been able to ensure the remedies were effectively implemented after our decision. This is what we usually called an "upfront buyer" solution.

However, UPS was not ready to offer this. Instead, it attempted to sign such an agreement before the end of the Commission's investigation – which is submitted to precise legal deadlines – and did so much too late for it to materialise.

Moreover, given the package of remedies proposed, we still had serious doubts on whether the buyer that UPS was working with – the French group La Poste/DPD – would have the ability and incentive to become a strong player in express deliveries.

In the absence of suitable remedies to the competition concerns we identified, I had no other choice but to propose to the college of commissioners to issue a negative decision. This is the third merger that is prohibited under my responsibility in this mandate, out of the roughly 800 mergers we have cleared since I took over in February 2010.

Let me recall what the principles of our merger control are. Where a merger would significantly restrict competition in the Single Market; where the efficiencies do not outweigh the harm for consumers; and where the proposals by the merging companies fall short of remedying such a negative outcome; then it is in the common interest to prevent the transaction from taking place.

Here our decision ensures that the companies that use these express delivery services are protected from a likely price increase which would directly harm their business as well as, ultimately, the final consumers.